Monthly Archives: July 2017

The ESG Integration Paradox

Michael T. Cappucci is Senior Vice President at Harvard Management Company. This post is based on a recent paper by Mr. Cappucci. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

If investment managers followed the old saying “whatever is worth doing is worth doing well,” then more would have best‐in‐class environmental, social and governance (ESG) programs. It used to be that asset owners could identify which investment managers “got” ESG investing principles simply by asking whether they had a written ESG policy. Today, most investment managers have something to say about ESG issues, and written ESG policies are becoming ubiquitous. Yet, as anyone who has ever looked at investment managers’ ESG policies can attest, the existence of a written document is not a reliable indicator of a firm’s commitment to or performance on sustainable long‐term goals.

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Review of Shareholder Activism—1H 2017

Jim Rossman is Managing Director and Head of Corporate Preparedness at Lazard. This post is based on a Lazard publication by Mr. Rossman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Review of Shareholder Activism in 1H 2017

1. The most prominent activists have ramped up their activity, raising capital and launching campaigns against blue chip targets

  • Unique approaches such as Mantle Ridge’s single-investment targeting of CSX, Greenlight’s dual-class proposal at GM and Elliott’s partnership with BlueScape at NRG indicate a willingness to pursue ambitious and creative strategies

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Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy

This post is based on a recent paper authored by Raffaele Santioni, Fabio Schiantarelli, and Philip E. Strahan. Raffaele Santioni is an economist at the Bank of Italy, DG Economics, Statistics and Research. Fabio Schiantarelli is Professor of Economics, Boston College and Research Fellow at the IZA Institute of Labor Economics. Philip E. Strahan holds the John L. Collins, S.J. Chair in Finance at Boston College Carroll School of Management and a Faculty Research Fellow at the National Bureau of Economic Research.

The Italian banking system began experiencing large credit losses starting at the beginning of the 2008 Global Financial Crisis and increasing further with the onset and deepening of the Euro Crisis in 2011. By December of 2015, aggregate bad loans had reached about €200 billion, or approximately 8% of total loans outstanding. Losses are substantially higher when other troubled loans not yet written off are included. Unlike other recent banking problems, where losses were concentrated in real estate or sovereign debt exposure, most of these losses—close to 80%—come from bad debts in lending to non-financial businesses.

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Securities Class Actions: 2016 Full-Year Review and Mid-2017 Flash Update

Stefan Boettrich and Svetlana Starykh are Senior Consultants at NERA Economic Consulting. This post is based on a NERA publication by Mr. Boettrich, Ms. Starykh, and Dr. David Tabak.

The pace of securities class action filings [in 2016] was the highest since the aftermath of the 2000 dot-com crash. Growth in filings was dominated by federal merger objections, which reached a record high, and followed various state court decisions restricting “disclosure-only” settlements, the most prominent being the 2016 Trulia decision in the Delaware Court of Chancery. Filings alleging violations of Rule 10b-5, Section 11, or Section 12 grew for a record fourth straight year and reached levels not seen since 2008.

NERA-defined Investor Losses, a proxy for filed case size, reached a record $468 billion in 2016, 44% of which arose from securities cases claiming damages due to regulatory violations. Of those, several large securities cases stemmed from a US Department of Justice (DOJ) probe into alleged price collusion in generic pharmaceuticals. Those cases contributed to a high concentration of filings in the Health Technology and Services sector.

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Tainted Executives as Outside Directors

Yonca Ertimur is Professor of Accounting at the Leeds School of Business at the University of Colorado. This post is based on a recent paper by Professor Ertimur; Jingjing Zhang, Assistant Professor of Accounting at McGill University; and Leah Baer, a Ph.D. candidate at the Leeds School of Business at the University of Colorado.

In our paper, Tainted Executives as Outside Directors, which was recently made publicly available on SSRN, we examine whether there is ex-post settling up in the director labor market for tainted executives, i.e., executives who are allegedly involved in governance failures. A rich literature dating back to Fama (1980) and Fama and Jensen (1983) argues that ex-post settling up in the labor market incentivizes managers to develop reputations as experts in monitoring and advising. Prior studies focus exclusively on the managerial labor market and document reputational penalties for tainted executives. Our motivation for focusing on the director labor market is twofold. First, given the monetary and non-monetary benefits of directorships, the director labor market can play an important role in shaping executives’ incentives. Second, because firms have different monitoring and advising needs, and face different supply of potential directors, it is not clear how the director labor market will evaluate tainted executives.

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The Effect of Cultural Similarity on Mergers and Acquisitions: Evidence from Corporate Social Responsibility

Frederick L. Bereskin is Assistant Professor of Finance at the University of Delaware Alfred Lerner College of Business & Economics. This post is based on a recent article, forthcoming in the Journal of Financial and Quantitative Analysis, authored by Professor Bereskin; Seong K. Byun, Assistant Professor of Finance at the University of Mississippi; Micah S. Officer, Professor of Finance at the Loyola Marymount University College of Business Administration; and Jong-Min Oh, Assistant Professor of Finance at University of Central Florida College of Business.

A critical determinant of merger success is post-merger integration. In our forthcoming Journal of Financial and Quantitative Analysis article The Effect of Cultural Similarity on Mergers and Acquisitions: Evidence from Corporate Responsibility, we provide an examination of the role of similarity in merging firms’ corporate cultures on merger outcomes. Specifically, we study whether firms with greater cultural similarity are more likely to merge, and whether mergers of culturally similar firms are associated with better outcomes for the firms’ shareholders.

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Learnings from Some Recent Contested Cases Before the UK Takeover Panel

Selina S. Sagayam is the Head of UK Transactional Practice Development in the London office of Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication by Ms. Sagayam.

The UK system of public takeovers—both with regards to its rules (as set out in the Code on Takeovers and Mergers (the Code)) and rulings under the Code—can be challenging to parties and practitioners not familiar with the underlying UK and European regimes on takeovers.

The key features of the UK takeover system are its flexibility, certainty and speed, enabling parties to know where they stand under the Code in a timely fashion. Another key feature is that the UK takeover landscape is generally devoid of tactical litigation during the course of takeover bids and the rulings of the Executive of the UK Panel on Takeovers and Mergers (Panel) (see below for further background information) are rarely formally contested.

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The Leidos Mixup and the Misunderstood Duty to Disclose in Securities Law

Matthew C. Turk and Karen E. Woody are assistant professors of business law at Indiana University’s Kelley School of Business. This post is based on their recent paper, available here.

The U.S. Supreme Court recently granted certiorari in a significant securities law case, Leidos, Inc. v. Indiana Public Retirement System (Leidos). [1] The legal question presented in Leidos is whether a regulation issued by the Securities and Exchange Commission (SEC), Item 303 of Regulation S-K (Item 303), creates a duty to disclose that is actionable under the anti-fraud provision set forth in Section 10(b) of the Securities Exchange Act of 1934 and the related Rule 10b-5. This is an important issue, because Item 303 concerns one of the more controversial line-item disclosures mandated under the SEC’s rules: an overview of known uncertainties facing a company’s financial future, known as “Management’s Discussion and Analysis” (MD&A).

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DOL Fiduciary Rule: Impact and Action Steps

Maureen J. Gorman and Lennine Occhino are partners at Mayer Brown LLP. This post is based on a Mayer Brown publication by Ms. Gorman and Ms. Occhino.

With the survival of the US Department of Labor’s (DOL) new fiduciary rule (at least for now) and the applicability date (June 9, 2017) now behind us, plan sponsors who have not already begun to do so should take steps to ensure compliance in light of the changes resulting from the rule. Fortunately, the implementation of certain exemption conditions are phased-in to some extent (from June 9, 2017, to January 1, 2018), and the DOL has announced a temporary “non-enforcement policy” for those fiduciaries who are working diligently and in good faith to comply with the rule and exemptions.

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Weekly Roundup: July 14–20, 2017


More from:

This roundup contains a collection of the posts published on the Forum during the week of July 14–20, 2017.



Kokesh Raises Questions About Declinations with Disgorgement Under the FCPA Pilot Program






Director Attention and Firm Value


Supreme Court to Hear Challenge to State Court Jurisdiction Over 1933 Act Class Actions








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